No individual likes being cash strapped, but mismanagement of funds happens. Most people face apprehensions when they think about their financial health, maybe you have not put enough savings for retirement or maybe the emergency funds are not big enough. Whatever your considerations might be, there is no time like the present to start getting your financial life in order through some budget management tricks. If you are not sure where to begin here are 9 smart money management techniques to get you started.
1. Make a Budget
Making a budget prevents you from spending more than your capacity. You plan how the money you have is spent, where it is spent and how much is spent.
Budgeting is the most important part of money management. One of the most popular methods of budgeting is the percentage method. You first calculate the expenses of your essentials this includes all utilities, bills and living costs and allocate a portion of your monthly pay generally 50%-60% to cover these costs. After that, you allocate 20% of your pay towards savings and emergency funds. The leftover 20-30% is allocated for personal spending which includes shopping, vacations, dining out etc. This way you do not skimp out on the fun while saving for the future.
2. Avoid Borrowing
Most financial institutions like banks and lenders come up with highly attractive loan offers that encourage you to borrow even for small purchases by having lower EMIs and delayed repayment schemes. However, it is not advisable to apply for such schemes just to satisfy the spending urge temporarily.
Unplanned debt can lower your credit score and put your financial planning at risk. Borrow only when it is absolutely essential and no other alternatives are available and always have a repayment plan ready before taking any loan.
3. Track Spending
In order to track your spending habits while spending money note down each expense. Credit card statements, bills, ATM withdrawal statements, online purchases, grocery and other electronic payments. Use free budgeting mobile applications or a notepad if you prefer writing it down. This will help you be in line with the budget you had set and keep a track of remaining funds to give you an estimate of how much you have left to spend.
4. Avoid Impulse Shopping
You may often get great deals on products, especially during the holiday season but that does not mean that you overdraft your spending capacity by making impulse purchases. With discounts, people are prone to indulge in shopping sprees and not keep a track of their spending limits that they set up in the budget. Always stick to your priority list and keep a track of each purchase to avoid destroying your financial goals.
5. Time Big Purchases
To avoid situations where you have insufficient funds to pay off essentials, time your big purchases. Plan out major purchases in advance and set up monthly saving goals to have enough money on hand. You can allocate funds out of the monthly spending towards these purchases and then take advantage of discounts and lean periods to purchase them at a lower price and more beneficial repayment schemes. You can also time your tax-deductible purchases at the year-end to take advantage of the returns claims.
6. Pay Outstanding Debts First
Re-look your total debt, calculate your total debt be it credit card debt, student loans, mortgage or loans, use financial calculators to calculate interest rates and the total amount for different time periods. Pay your debt with the highest interest rate first to avoid further depletion of your funds. in most cases credit cards carry the highest interest rates, then housing, student and private loans. The faster you clear your debts the more money you will be able to save by not paying interests. Alternatively, you might also consider if any debts can be refinanced at lower rates.
7. Optimize Your Taxes
The average person pays up-to 20% of their income as taxes, so optimizing your taxes for small savings can build up over time. By learning the basics of tax optimization, not only can you save money but you can invest better too. Even if you are using professional tax-consultant learning the basics and getting to understand your own tax situation better can help you in the long run. you can spot where to save money each year and new deductions and laws you can use to your benefit to save more money.
8. Choose The Right Spending Tool
Even while spending it is important to choose the right spending tool. Credit cards offer attractive discounts and offer in the way of points that you get for purchases. Ideally, if you pay off your credit card debt every month it should not be a problem, however, if due to unforeseen circumstances you can’t the high interest rates can pile up. Do not use your credit card to pay for daily expenses, save them for emergencies and big purchases. Ideally, you can also look for offers on your debit cards to minimize the chances of unplanned debt.
9. Create An Emergency Fund
Houses break, jobs can be lost and people can get sick, regardless of what happens you will want to have access to sufficient liquidity to tide over unforeseen events. That is why an emergency fund is important, it serves as a cushion to soften the blow of any financial emergency. Save 5-10% of your monthly income in a separate account and over the years it will accumulate into a proper emergency fund.
To End With…
A proper money management plan can help you build financial security, get a grip on your spending habits and make a plan for any emergencies. It is never too late to start planning and saving and hopefully, the techniques provided above will lead you to a better and more secure financial future.
Abhyank Srinet holds a Masters in Management degree from ESCP Europe & has an engineering degree with a specialization in Instrumentation & Control. His interest in the digital landscape motivated him to create an online startup for Masters in Management application consulting (MiM-Essay), focused on spreading quality information about the MiM degree & performing application consulting services for clients. He is the chief consultant of the company and takes care of the Business Development and Digital Marketing side of the company.
He is very passionate about writing and marketing.